With tax season in full swing and the April 18 filing deadline fast approaching, many Americans are once again wondering if they should take a standard deduction or consider itemizing their deduction. If you’re considering itemizing your deductions and preparing your tax return, here’s a guide with last-minute deductions you might consider.
A financial advisor could help you with tax planning, as well as other financial planning needs.
Definition of tax deductions
The United States has a progressive income tax system. This means that as your income increases, you are taxed at a higher percentage. However, you are not taxed on all of your income, as part of the money is deductible from your total taxable income. Most people use what’s called the standard deduction, which means you deduct a dollar amount determined by the federal government. For the 2021 tax year, the standard deduction is $12,550 for single filers and persons who are married but filing separately. It is $25,100 for joint filers and $18,800 for heads of families.
Some people, however, choose to itemize their deductions. It takes longer, but if you think you can deduct more than the standard deduction, it could save you some money. Here are examples of common itemized deductions:
- Charitable donations
- Professional expenses
- Certain medical expenses
- Mortgage interest
- Tax-deferred pension contributions
4 last-minute tax deductions to consider
If you’re currently preparing your tax returns and you’re still not sure whether to take the standard deduction or review and itemize, here are some last-minute deductions you could take advantage of that you might not have thought of. . These deductions might also push you to itemize as the most financially sound course of action.
More pension contributions
As noted above, contributions to tax-deferred retirement accounts such as a traditional IRA can be deducted from your taxable income. What you may not realize, however, is that you can still make contributions that count for your 2021 tax year through April 18, 2022 in 48 states and residents of Washington, D.C. of Maine and Massachusetts have until April 19, 2022. Say, for example, you put $3,000 into your IRA in 2021. You still have $3,000 available for contributions before you reach the $6,000 IRA limit. . If you put that money in right now, you can deduct it from your total taxable income for 2021. This does two things: lower your tax bill now and build your nest egg for retirement.
Secondary expenses
Here’s one you might not have thought of: if you’ve found a way to monetize your hobby, you can deduct the related expenses from your taxable income. Let’s say you love knitting and you’ve started selling your knitwear online. You may be able to deduct related expenses – such as knitting needles, patterns, and yarn – from your income.
Tax preparation expenses
If you pay for tax preparation — like buying a premium version of a service like TurboTax — you can deduct that too. It probably won’t drastically change your taxable income, but if you itemize, every dollar counts.
Interest on student loans
You’re probably used to complaining about your student loan debt, but here’s how it can help. You can deduct up to $2,500 in interest on your student loan, so if you choose to itemize and you have student loan debt, be sure to include it.
Conclusion
Itemizing your tax deductions is an option to lower your tax bill if you think you may end up taking more than the standard deduction. Some deductions are well known, but if you choose to itemize your deductions, don’t lose some deductions you may not be aware of.
Tax advice
- A financial advisor can help you get the best price for your taxes. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
- Get an estimate of your tax bill using SmartAsset’s free tax calculator. This way you can plan ahead and budget based on your estimated payout.
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